Markets reserving judgement on Trump

The market reaction to Donald Trump’s victory at the polls last week was driven by trading patterns rather than investor sentiment on a Trump presidency, and the market’s verdict is yet to be seen, according to Principal Global Investors.

As the results came in and the US futures market dropped, investors saw the opportunity to buy the dips on US equities, Principal Global Investors chief executive Jim McCaughan said.

“The next day, those who had hedged against a Trump victory – which many had, thinking it would lead to disarray in the equity market – hurriedly had to close those hedges,” he said

“That’s really what pushed the market up – it wasn’t really a verdict on the Trump presidency.”

Mr McCaughan said the market’s verdict on Trump’s presidency is still “very uncertain”, noting that while tax reductions and fiscal stimulus could offer “quite a significant Keynesian stimulus on the economy”, the scrapping of trade agreements and the affordable care act could equally be very negative.

“On the one hand, it could be a very positive economic policy like the Reagan tax cuts, which in the end, did stimulate sustained growth for a while, or it could lead to higher interest rates choking off recovery with a recession in 2018,” he said.

“For the time being, the US economy will do OK, but we need to be watching the signs for 2018 and beyond.”